2006 audit reported state's risky mortgage investments

January 8, 2008|By Aaron Deslatte, Tallahassee Bureau

TALLAHASSEE -- Outside auditors charged with overseeing the State Board of Administration knew more than a year ago that an internal report had red-flagged the agency for not adequately supervising the risky investments made by its money managers.

The SBA's internal auditor, Flerida Rivera-Alsing, reported the findings in fall 2006 to the three-person panel of inspectors general who in turn are answerable to the governor, attorney general and chief financial officer, officials said.

Among the audit's findings: the agency lacked adequate risk-management reviews, senior managers weren't involved in setting investment goals, and the agency relied too heavily on a handful of large brokers to make investments.

"There was lots of discussion about that particular report because it did raise some concerns," Melinda Miguel, chief inspector general to Gov. Charlie Crist, said Monday.

Miguel chairs the SBA's Audit Committee, which last month began an investigation of the agency's investments in shaky, mortgage-backed securities that prompted a $14 billion wave of withdrawals in November from a local government investment pool. A withdrawal freeze to stop the run forced some cities and schools, which used the fund to invest spare operating funds, to scramble to pay salaries and bills.

Miguel, officials from the agency and Chief Financial Officer Alex Sink were grilled Monday by a panel of legislators who wanted answers about how those mortgage-backed investment decisions were made.

Lawmakers on the Joint Legislative Auditing Committee questioned why the SBA and auditors who oversaw the agency couldn't say what had been done to fix problems spotted by the 2006 audit.

"Who was minding the store, and why didn't we see the red flags in March and get on them?" said Rep. Susan Bucher, D-West Palm Beach.

Miguel, who is heading up the new audit, said she recalled discussing the slow progress of the audit in late 2006, and that copies were forwarded last spring to all three trustees who oversee the SBA. Although the agency hasn't said what fixes it made, Miguel said the process shows investigators were keeping an eye on the agency.

"It shows we weren't asleep at the wheel," she said afterward.

Acting SBA Executive Director Bob Milligan said Monday he has been trying since last week -- when the Orlando Sentinel first reported the existence of the audit -- to find out what the response to it was and asked for patience while he gets answers.

"Some things have been acted upon -- not all," he said. "I'm trying to sort through that right now."

In the final audit finished in March, SBA managers wrote they would "consider" most of the 18 "high priority" recommendations. A follow-up report that was supposed to be produced three months ago highlighting what was done has yet to be produced.